Yes bank

(Nikhil Rodrigues) #161

@vicky_7900 : Yes Bank’s says their retail advances are 32% including MSME. That is the difference. No other bank classifies SME and MSME in retail. These are mostly working capital and business loans. Moreover SME loans carry much higher risk than plain car, bike, CV and mortgage retail loans.

This 32% number is misleading and real retail loan book of Yes is very small. Maybe less than 15%. So Yes is still primarily wholesale bank. Same goes with Yes Banks deposits. They consider SME/MSME deposits as retail and try to say retail deposit % has gone up. Other banks consider deposits more than 1Cr as bulk deposits. But for Yes bank this limit is much higher. Hence their % of real retail deposits (non-bulk) is much smaller. Only good thing about Yes banks deposit base is increasing savings accounts. Even for that their cost is 6-7%.

Market knows all this and is pricing bank accordingly. No surprise there. It took me 4 years as Yes Bank’s investor to understand the reasons behind cheap-looking valuation of Yes Bank. Definitely I am a novice and market knows Yes Bank much better than me.

(Nikhil Rodrigues) #162

Just to add Yes Bank’s P/BV is post last years capital raising of 3000 Cr. Usually after banks raise equity, their PBV looks optically low till the capital is deployed and ROE improves.

IndusInd bank recently raised 5000 Cr through QIP and their P/BV is now 3.5

(PP) #163

Nikhil, any views on Muthoot Finance?

100% retail / SME loans
100% secured loans against gold jewellery (max. LTV 75%)
RoE 15% (should get back to 20% by Q4-FY16)
Regulatory stability has come (post some ‘negative’ regulatory actions by RBI in 2013)
20% loan book growth expected by management
Scale advantages (4200 branches)
Strong moat (due to low-cost operations / entry barrier due to need to build trust for customers to hand over gold jewelry / customers have sentimental value for gold, and unlikely to default / regulatory barriers)
Well capitalized (CAR = 24%)
High dividend payout (40%)
Cheap valuation (1.44 P/V)

Of course, the risk of gold price volatility is there - though it is a risk only if gold falls suddenly by 40% in less than 6 months.

Sorry, for bringing this up in Yes Bank thread. IS there a way this can be moved to Muthoot Finance thread?

(vaibhav) #164
  1. It slipped my mind that the capital that Indus Ind raised (5000cr.) might not have been included yet for calculating the book value at various sources (like screener, profit.ndtv etc). So, that’s a mistake on my part.

  2. I am aware that on raising capital through QIP, the RoE and EPS would usually come down and would take time to re-attain the old RoE and EPS by growing deposits and advances. YB has shown that growth in deposits(including in CASA) and in advances and should be back to the usual RoE of 20% pretty soon. Right now, it is 18-18.5%.

  3. I am aware that YB reports numbers for ‘Retail Including SME/MSME’ as one category and ‘corporate’ as another category. I would assume that SME/MSME loans would be relatively small loans. Would it be appropriate to consider them wholesale loans? I would guess no. Smaller loans reduce the asset quality concerns, and we’ve seen in YB’s case, the asset quality numbers reported are best in India. Loans are backed by cashflow generating assets as well as other collaterals.

  4. You mentioned YB retail loan may be 15%. Any source or is it a pure guess?

  5. If the business is such a wholesale-type business, then why are the NIMs ever increasing(from 2.7% in FY08 to being a respectable 3.3%) despite giving a high 6-7% interest on saving deposits? Such impressive growth in NIMs is a proof enough imo, that they have been moving into retail (aside from the improved casa) because NIMs for most other private banks have shrunk.

(Nikhil Rodrigues) #165

@PP I do not track Muthoot Finance but the numbers you have mentioned indicate it’s quite good NBFC. Their business model was great until government and RBI cracked it. But if we assume that risk then it’s good candidate for investment.

Numbers to closely monitor would be their NPA and trend of ROA and NIM.

(Nikhil Rodrigues) #166


The 15% figure I gave for YB retail loan is pure guess. No source.

I agree that NIM increase is impressive. We should see whether 3.3% is sustainable. Till FY15, management was indicating stable NIM of 3-3.1%.

For long term there is one more trend that needs close monitoring. For predominantly retail banks like HDFC and IndusInd, Cost to Income ratio is 45-50%. But for banks like Yes it’s around 37-38%. This is because retail banks need branch infrastructure for business while wholesale banks can do more business with lesser infrastructure and employees. Now as Yes Bank increases retail presence, it’s cost to income ratio will increase in future. The ROA is majorly contributed by NIM and Cost to Income; if NPA’s are managed. So over long term, effect of this on ROA will have to be monitored.

I am not saying Yes Bank is not investment candidate. I just prefer other banks. Just my personal opinion.

(vaibhav) #167


You are ofcourse fully entitled to your opinion. But wouldn’t you say Yes Bank is by far the fastest growing bank in India? I would like you to have a look at the latest investor presentation of 29th July (page 22,23,24) -

  1. No. of liability a/c 1.08 cr in march 2014 to 1.53 cr in march 2015 =>42% growth.

2. ‘SA’ component of the CASA in particular => 500cr in Q4 FY-2011 to ~14,000 Cr in Q1 FY16 (latest ‘SA’ if I heard it right in the conf. call). That’s ~28 times in 4.25 yrs or a CAGR of ~119%?

  1. Branch growth from 117 in Mar 2009 to 630 in Mar 2015

  2. Growing Retail Book by 3x in 12-18 months

Wouldn’t you say these are absolutely brilliant numbers? The visibility of YB thanks to cashbacks on snapdeal, IPL sponsorship and 7% savings interest (over 3 lac) is very very high relative to other mid-sized banks resulting in such numbers.

(vaibhav) #168 (16th July)

ET Now: The Cabinet has finally given the nod for clubbing foreign investments under the composite investment cap, which spells good news for your business. What are your thoughts?

Rana Kapoor: It was eagerly awaited. It is indeed a very good news for our business, particularly for foreign ownership largely represented through the FII route. It has been fairly close to 49% in the past. Now, this is naturally going to allow headroom all the way up to 74%. That means another 27-28% headroom for FIIs to participate in the ownership of Yes Bank.

ET Now: For FII to participate, somebody has to sell. But your stock has done so well that I doubt if there will be any sellers. Your take?

Rana Kapoor: Market participants will decide the future course of action. There is enough liquidity in the stock. At some point in future, having taken enabling approvals for our $1-billion dollar fundraising, we will have the option to have an ADR-cum-QIP issue. So, there will be more stock when that happens.

It may happen in 6-9 months. It creates more liquidity in the stock and also gives us an opportunity to get back into the MSCI. As you know, we had to exit the MSCI a few months ago because of the limitation on the FII ownership.ET Now: MSCI entry means that suddenly you will be part of global benchmark funds. Do you get the sense that clients have been waiting for this composite limit to go up?

Rana Kapoor: Most definitely. We went on non-deal road shows in the US last month — in San Francisco, LA, Boston, New York — and in London. After that, I came to know with utter certainty that investors had been waiting for these limits to go up.

To that extent, it is a great reform for the country, and particularly for the banking sector. Naturally, Yes Bank is going to be a significant beneficiary of this.

ET Now: You have probably already spoken to the market about your potential ADR and QIP issue. How do things stack up on that front?

Rana Kapoor: We have got all enabling approvals from shareholders and the board of directors. But this headroom availability will yield the best results only when the time is most opportune.

So, to raise this $1 billion, we would naturally like to go to the markets when the stock price is more attractive.

I expect this to happen well before March 2016. That means we still have the next eight-and-a-half months to consider all aspects associated with the issue.

ET Now: At Rs 830, the stock is not far away from an all-time high. You think it is not attractive enough?

Rana Kapoor: It is difficult for me to comment on this. Market forces will decide what happens. All I can say is that there are a lot of encouraging reports from leading market research institutions. We would like to go by some of these reports.

Among these reports, there are only a couple that have a ‘sell’ on our bank. Another couple have a ‘hold’. Over 90% of the reports have a ‘buy’.

This may be the best time to load up yes bank.

Disc: views may be biased as I am invested.

(PP) #169

RBI regulations mandate them to report NPA numbers - but then it is a meaningless number for gold loan NBFCs. Gold loan NBFC is one of those rarest of the rare lending businesses, which almost never have any ‘real’ NPA - due to the very nature of the business. When the gold jewellery collateral is lying with the lender, what is the risk of NPA? You just go and auction the gold jewellery after the stipulated waiting period as mandated by RBI (I think it is 6 months). So, any NPA is not sticky, and also fully backed by collateral. Every other kind of lending has either sticky NPAs, or doesnt have a good collateral, or both…

The figure to track is credit losses - After auctioning the gold jewelry, what is the shortfall against the money you have lent… The credit losses are laughably small - it is like 20 crores in a year (on a loan book of 25000 crores)…

Regarding regulatory scenario, in 2013 RBI made a few negative changes as a temporary measure. In 2014 RBI did a lot of positive things which helps Muthoot Fin… The key 2 points are…

  • Regulatory structure has been considerably strengthened (this increases the moat for large players like Muthoot Fin, as the entry barriers and compliance costs have increased)
  • LTV has been capped at 75% for all gold loans (now, Muthoot Fin is not forced to give loans at risky LTV of 85%-90% types to compete with unorganized players, thus increasing the margin of safety)

NIM is an eye-popping 9.4%, which they have maintained even during the worst days of RBI ‘negative’ interventions.

RoA dropped to 3% from 4%, which was due to fall in loan book size following RBI interventions (and not due to fall in margins). Since loan book has been recovering the last 4 quarters (after the RBI stance stabilized), the RoA should bounce back to 3.5% by the end of the year. And could get back to 4% by end of FY17.

Any thoughts?

(Nikhil Rodrigues) #170


Yes Bank is fastest growing bank in India. No doubts there. But in case of banks and NBFC’s, fastest growth does not mean fastest growth in stock price. A lender growing fast should be monitored carefully.

Muthoot and Manappuram grew at break-neck price in 2010-2013 period. ICICI bank grew very fast in 2004-2008 period. But the growth did not translate into stock price for these companies. Never go by pure fast growth for banks and NBFC’s.

I might be biased since I no longer hold Yes Bank. But my thinking was exactly same as yours few years back. That did not translate into great gains though (I made 25% CAGR in Yes Bank from 2010-2014)

(Nikhil Rodrigues) #171

@PP I think I should study Muthoot. Your analysis is compelling me to take a closer look. I think all the points mentioned above are valid and positive for Muthoot.

(PP) #172

I did start a thread on it… Didn’t get any response on the thread from other VPers… Partly my fault - because I analyzed it thread-bare… And nobody would care to read the 5-6 pages of analysis I put up there (I thought it will benefit people :smile: )

(vaibhav) #173

25% is pretty decent Nikhil, as stocks double in 26% CAGR over 3 yrs. I am at ~60% gain in 1 yr from YB, am expecting (hoping) double from CMP in 2 years on account of growth and re-rating. Reasons -

  1. Current asset quality - current NPAs (NNPA=0.13%) & restructured assets (0.71%), focus on retail lending.
  2. Growing CASA - specially the ‘SA’ portion in CASA - growing at a blistering pace. no other bank comes close. (~119% cagr over 4 years for savings deposits)
  3. FIIs allowed upto 74% from current 49% limit. Opens door for MSCI entry again. To raise $1bn through ADR/QIP.

Double in 2 years means ~42% CAGR which is very good imo.

(PP) #174

In short, many positives in Yes Bank (fast growth, improving retail profile, improving CASA, increasing branch network, possibility of re-rating) and a few negatives (riskier lending, mostly wholesale banking, promoter infighting, etc…)

I guess, not good for a 20% allocation - but should be OK for a 5% allocation… I am a little bit on the conservative side and prefer the lowest risk stocks (at the cost of sacrificing some returns) - so now going through mental struggle whether to continue holding on to Yes Bank…

Thanks to everyone for a great discussion… Lots of learning for me…

(Kunal shah) #175

Margin will improve 10-15 bps per year

from concall transcript …

(manomagg3) #176

any body aware of any new development in Yes Bank
the stock is hammered today

(Nikhil Rodrigues) #177

@manomagg3 : Entire market was hammered today. Yes Bank usually is high beta and falls/rises much more than market.

(Manish Vachhani) #179

Do you think your latest post in this thread add any value to the forum. Please think twice before posting. Posts related to market gyrations are not at all encouraged.

(vaibhav) #180

YES Bank advance tax outgo up 30% in Q2 -

(vaibhav) #181

Q2 results -

  1. CASA up 300 basis points from 22.5% to 25.5% . Interest rate on SA reduced to 6% from 7% wef 1st Nov.

  2. CASA+Retail FD is 52.5% of total deposits compared to 42.9% an year ago

  3. SA (saving deposits) grew 61.7% yoy.

The bank has better visibility than even the larger banks like icici and axis due to cash backs on snapdeal, amazon etc. , attractive interest rates, which in my view is the reason why the CASA+Retail FD is growing at a massive pace.

Even as of now, it has a long term(10 yr) RoE of 21.6%.

The above plus the emphasis of retail lending would help re-rate this stock over time imo and together with 20-25% growth, capital raising (via ADR) at good valuations hopefully, this stock can even quadruple in 3-4 years if all goes well.

Disc.: invested